Fears of a triple-dip recession return as survey puts business confidence at a 21-year low

Business confidence has fallen to its lowest level in 21 years, according to a survey, raising fears that the economy will struggle to avoid a new recession this year.

The BDO Optimism Index, which predicts economic activity during the next two quarters, dropped from 90.3 in December to 88.9 in January.

This is the eight month in a row that the reading has remained below 95.0 – the level which indicates economic growth.

Business confidence has fallen to its lowest level in 21 years, according to a BDO survey

The index is based on a number of UK
business surveys including those by CBI, the Bank of England and the
Chartered Institute of Purchasing and Supply. Some 4,000 respondents
were polled, from firms employing a total of around 5million employees.

The fall in the index is a bad sign after the UK economy shrank by 0.3 per cent in the final quarter of 2012. A fall in the first quarter of 2013 and Britain will be back in recession - an unprecedented triple-dip.

BDO’s Output Index, which forecasts short-term business turnover, also gave cause for concern, falling from 93.1 to 92.3 last month.

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However there are signs of growth in the labour sector. BDO’s Employment Index, which indicates firms’ recruitment plans over the next two quarters, increased to 95.1 in January from 93.0 in December – above the point of 95.0 which suggests growth.

This is the first time the Index has risen above 95.0 since April last year. This also supports the latest ONS Labour Market statistics, which saw unemployment drop to 7.7 per cent in the three months to November, compared to 7.9 per cent in the previous quarter.

BDO Optimism Index, showing a fall in business confidence during the next two quarters

BDO’s Peter Hemington said: 'In spite of a strengthening Labour Market, business confidence continues to weaken, and improved hiring intentions are not translating into growth plans. It seems the damaging effects on businesses of five years’ zigzagging economic growth, has left them wary of making concrete plans for expansion and resigned to the ‘new normal’ of economic stagnation.

'To end this cycle, it is imperative that the Government implements plans to expedite growth. Without growth incentives, we will continue to see UK businesses reluctant to invest and expand, which poses a grave threat to the UK’s economic recovery.'

Meanwhile, rising confidence in the manufacturing sector has provided some hope of growth, with both Output and Optimism indexes up this month. Optimism for manufacturing firms increased from 91.9 in December to 95.2 in January, while the Output Index rose from 90.6 in December to 92.3 at the start of this year.

BDO Output Index, which fell from 93.1 to 92.3 last month

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BDO Optimism Index puts business confidence at a 21-year low, raising fears of a triple-dip recession